In a letter that broadly criticized the federal health reform law, Louisiana’s health secretary officially declined Wednesday to move forward with a state-run exchange for consumers to buy insurance. The move means the U.S. Department of Health and Human Services will be tasked with getting the exchange up and running by the fall of next year.

The decision was not unexpected. Bruce Greenstein, secretary of Louisiana’s Department of Health and Hospitals, said in March 2011 that the state would defer to the federal government on this key part of the federal law. Gov. Bobby Jindal reiterated that point in an interview with the Huffington Post earlier this week.

The letter, written by Greenstein, was released Wednesday in advance of a Friday deadline for states to tell the federal agency their official positions on establishing exchanges. But HHS Secretary Kathleen Sebelius on Thursday pushed back the deadline for states to make their final decisions by at least a month in response to a letter she received from Republican governors earlier in the week.

Meanwhile, New Orleans Mitch Landrieu wrote Jindal and Greenstein on Thursday, asking them to reconsider the exchange decision.

Several states -- including Alabama, Missouri and Kansas -- joined Louisiana this week in announcing they won’t participate in this part of the federal law. Some states whose leaders have been mulling their options are expected to sign on, either operating an exchange on their own or in partnership with the feds.

As of Thursday, the Kaiser Family Foundation and news reports showed that 16 states will move forward with exchanges, while 16 have given their final word they won’t. Another five states planned to operate exchanges in partnership with the federal government.

In the letter signed by Greenstein, the state called the Affordable Care Act “bad policy,” saying it fails to foster real innovation.

The exchanges are new online marketplaces where individuals and small businesses can compare and purchase insurance policies. Families with incomes up to 400 percent of the federal poverty level – or about $88,000 for a family of four -– will be eligible for subsidies to pay for coverage.

Greenstein said the exchanges as envisioned in the federal law are too regulated, likely raising costs and limiting choice. The concept is “only masquerading as a free market idea,” he wrote to Sebelius.

“Many employers will drop the health insurance coverage they currently provide to employees, leaving individual health care needs to the federal government,” Greenstein predicted in his letter.

Landrieu countered that the state should take full advantage of the federal health law, saying the opportunity to expand insurance would be a boon for the working poor.

"These are hardworking, salt of the earth Louisianans -- construction workers, waiters, fishermen, health care professionals, and those in the tourism industry -- all of whom are critical to the fiscal health of our state," the mayor wrote.

Allowing the federal health agency to run the exchange means Louisiana won't get a marketplace geared to the state's particular needs, Landrieu argued.

In his letter to Sebelius, Greenstein wrote that while the U.S. Supreme Court largely upheld the federal health law this summer, other legal challenges are still pending in the lower courts. One lawsuit specifically questions whether federally-run exchanges, as opposed to those run by states, are authorized to provide premium subsidies.

In recent days, several commentators have underscored one concern
raised by Greenstein: The very tight schedule that federal regulators
will be on to get the exchanges up and running by October 2013. The
exchanges need to be completed by then so people can use them to
purchase insurance for early 2014.

Despite declining to
participate in this part of the federal law, Greenstein concluded his
letter with a list of demands that the federal agency keep the state
abreast of its efforts, including regular briefings on their progress.

Proponents of the exchanges hope they will foster competition in state insurance markets, which are often dominated by a small number of companies. They argue states that cede control of the exchanges to the federal government miss the opportunity to take advantage of the knowledge of local insurance regulators.

The Urban Institute estimated that as many as 317,000 individuals would participate in Louisiana’s exchange, with more than 209,000 of them qualifying for subsidies.

Estimates on the number of uninsured people tend to vary. A survey conducted for the state health agency concluded there were 675,954 uninsured people under the age of 65 in Louisiana. A Center for Budget and Policy Priorities report, which used U.S. Census data, estimated there were 784,015 uninsured people in Louisiana in 2011.

With the re-election of President Barack Obama last week ensuring the federal health law will move forward, many governors need to make quick decisions about their positions. In an acknowledgement of impending deadlines, Sebelius last week gave states another month to actually draft plans if they decide to operate an exchange or work in partnership with her agency.

But in a letter to Obama, Republican governors on Wednesday asked the president to extend deadlines more broadly, saying the existing schedule was too compressed and governors lack sufficient information about DHHS plans. The letter, signed by Jindal, incoming chairman of the Republican Governors Association, and Virginia Gov. Bob McDonnell, also asks Obama to sit down with a bipartisan group of governors to discuss revamping health entitlement programs.

The letter asked Obama specifically to talk with governors about state Medicaid programs, which Jindal and other GOP governors argue need to be reworked.

Sebelius in her letter back to Jindal and McDonnell said states could take up to mid-February to apply for a partnership arrangement with the federal agency. If states decide to go it alone, they need to inform DHHS and submit an application within a month, she wrote.

While Sebelius pledged to provide states with flexibility, she did not address the Republican governors' criticisms of Medicaid.

The federal health law would extend coverage to the poorest uninsured people by expanding state Medicaid programs, largely at the expense of the federal government. Louisiana Democrats, like Landrieu, and several advocacy groups have argued the state should embrace this part of the law, also slated to go into effect in 2014, as it could provide needed insurance coverage to as many as 400,000 low-income people.

"The
federal government
has committed to finance 93% of the expansion coverage for the first
decade. We can either act, and pay pennies now or abstain and pay
dollars later," said Dr. Karen DeSalvo, New Orleans' health commissioner, in a news release.

But Jindal has said Louisiana won't expand Medicaid, saying it eventually will become a burden for the state and the program is outdated.

In an interview on Wednesday, Greenstein said the Jindal
administration hasn't changed their position on expansion. But with the
election completed, he emphasized he is interested in talking with federal health
officials about changing the Medicaid program.

"We would
definitely be interested in having a discussion about what a modernized,
flexible, state-centric Medicaid program would look like," Greenstein
said, later noting that the time frame for expansion is still more than a
year away.